An Australian Constructors Association (ACA) report has quashed any claims of underpayment throughout the industry, amid the industry’s increasing insolvency rates.
Titled Trust deficit, the report indicates that payment performance among construction companies is aligned with the rest of the economy. The report also outlines that further regulation, like the proposed Project Bank Accounts (PBAs), would only stand to hurt the wider sector.
According to the Federal Government data, the construction industry pays almost 70 per cent of its invoices on time, aligning closely with the economy-wide average,” says ACA CEO Jon Davies.
“Industries such as health and social assistance, IT and the retail sector are less likely than construction to pay their suppliers on time.
“The only valid reason to impose additional regulation like PBAs on head contractors would be if the industry’s payment performance was systematically worse than others – and it isn’t.
Davies says PBAs, an alternative payment mechanism that utilise a dedicated trust account to ensure direct and instantaneous payment between parties, are not reminiscent of true construction transactions.
“PBAs are not a guarantee for subcontractor payment because they don’t reflect the realities of the way construction payments flow. If no money is coming in, there is no money to pay out,” he says.
“We have seen this play out recently in the first test case of Queensland's PBA laws, where the insolvent builder's trust accounts held less than ten percent of the funds owed to subcontractors.”
The report emphasises that PBA schemes put restrictions around legitimate trade, and do not solve the problems they are set out to remedy.
“PBAs require builders to act as 'trustees,' as if they were a solicitor in a property transaction. This significant market intervention prevents builders from engaging in essential strategies crucial for business growth and stability,” Davies continues.
“Such heavy-handed regulation should not be adopted lightly. It must be based on a compelling case of market failure. That case simply hasn’t been made.
“There is no question that the construction industry is in a weak financial position. But the answer is not to further hobble one category of business that is already heavily burdened with regulation. The answer is to fix the broken commercial model that transfers all the risk to the builder and drives a race to the bottom.
“We need more collaborative procurement models that focus on delivering best value not lowest price at the tender box.”
To download the report, click here.
